The accounting firm of Pie and Lowell is examining its client base to determine how profitable its regular clients are.Its analysis indicates that Chico,Inc.paid $116,000 in fees last year,but cost the firm $124,000 ($106,000 in billable labor,supplies,and copying,and $18,000 in allocated common fixed costs).If Pie and Lowell dropped Chico,Inc.as a client,and all fixed costs are unavoidable,how would profit be affected?
A)$0
B)Increase $8,000
C)Decrease $10,000
D)Decrease $116,000

Question

Quizplus · Accepted Answer

If Pie and Lowell dropped Chico, Inc. as a client, they would save $116,000 in fees but only $106,000 in billable labor, supplies, and copying costs. The $18,000 in allocated common fixed costs are unavoidable and will not be saved. Therefore, the firm's profit will decrease by $10,000 if they drop Chico, Inc. as a client.

The Accounting Firm of Pie and Lowell Is Examining Its